VANCOUVER — Faisal Yonadim doesn’t mind sharing his home with strangers — as long they aren’t loud, don’t party all night, and are considerate of his neighbours.

And the extra income he banks every month for renting out his two-bedroom basement suite doesn’t hurt either.

“It doesn’t matter (who they are) as long as they are noiseless,” he said.

In Metro Vancouver — where the average price for a typical single-family home tops $923,700 — the prospect of having some form of secondary suite to rent out to help with the mortgage is downright seductive.

Especially when the region’s apartment vacancy rate, as measured by Canada Mortgage and Housing Corp. (CMHC), is at an extremely low 1.8 per cent and renters are often scrambling for options.

Yonadim renovated his basement suite nearly six years ago after his children moved out to make extra money to cover the mortgage on his Coquitlam home. He has been lucky so far. His first tenants were a working couple who met all the requirements on his checklist, and are only now moving out after buying themselves a condo.

“The were very cooperative and understanding,” Yonadim said. “We communicated a lot about what they wanted and what we wanted. Communication is important. After (tenants) move in, that’s when the problems (can) start.”

Most B.C. landlords, like Yonadim, are fortunate enough not to encounter major issues when renting out their basement suites. But a small number of landlords have horror stories to tell.

Recently, one landlord temporarily, and unknowingly, rented out her basement suite at Shawnigan Lake to a meth addict and couldn’t immediately evict him. Others have had tenants skip out on the rent, change the locks on the house without permission, or rented to tenants who felt they had a say in household operations.

Many homeowner landlords are afraid to talk about such difficult tenants.

“They’re concerned that by describing a specific situation they may open themselves up to liability — being sued by a tenant,” said Amy Spencer, president and chief operating officer of the Rental Housing Council of B.C.

Other issues include tenants who smoke marijuana or cigarettes in a non-smoking home, or sneak in pets, Spencer said. The biggest issue recently appears to be the use of drum kits in basement suites.

Yonadim, who is now seeking a new tenant for his two-bedroom, $900-per-month ground-level suite, is among the majority of landlords who manage to land reliable tenants for their suites.

He is looking for a student this time, but the stipulations remain the same: “No pets. No smoking inside. No noise or parties.”

While renting out a basement suite sounds like an easy process, adding landlord to the title of homeowner comes with considerable legal obligations, not to mention raising the financial risks if a rental falls through.

Canada Mortgage and Housing Corp. estimated that in 2012 there were 39,307 secondary suites in Metro Vancouver homes.

In Vancouver proper, a 2009 city estimate found there were at least 25,000 homes in single-family zones containing some form of secondary suite.

On the side of financial benefits, depending on what bank you are dealing with, a would-be homeowner can count up to 90 per cent of a suite’s rent against the income they need to qualify for a mortgage, said Ryan McKinnley, mortgage development manager at Vancity credit union.

That, he added, is a big factor in moving a couple with a modest income from being unable to afford a home to being able to buy the house they want.

He used a set example to demonstrate how much of a difference a rental suite can make:

If a couple was looking at an $800,000 home, with a 20-per-cent down payment, they would need an annual family income of $122,000 to qualify for the $640,000 mortgage on a fixed five-year term at the current 3.69-per-cent rate.

However, if the house in question had a basement suite that could be rented for $1,500 a month, the $1,350 in monthly rental income that the couple could apply to their mortgage application would reduce the required family income to $72,000 a year.

To stretch the example even farther, if the couple was willing to live in the basement suite themselves and rent out the rest of the house at $2,500 per month, the $2,250 they could apply to the mortgage means the $800,000 property would be in reach with a family income of $45,000.

“It’s very common — and it’s often that one piece that actually allows (a homebuyer) to purchase the house that they want,” McKinnley said.

However, McKinnley said homeowners need to have a plan going into the process, with contingencies covering off all the “what-if” scenarios. Such “what ifs” include being able to cover the full mortgage cost if the suite is vacant for a month or two, as well as the cost of repairs and proper insurance.

Setting aside a couple of months rent in a savings account — as a cushion against an unforeseen vacancy — allows a homeowner to take time to find a good tenant rather than rushing to rent it out. That contingency “will give you peace of mind,” McKinnley added.

“Whenever you’re dependent on income that could potentially not be there for a month or two, it’s important to look at that,” McKinnley said.

Then there is the issue of whether a suite is legal.

Discouraged for decades as a nuisance, most Metro Vancouver municipalities now do allow secondary suites. Only Burnaby restricts suites to relatives of a homeowner or in-home caregivers.

The City of Vancouver, for instance, passed a bylaw legalizing secondary suites in all single-family zoned areas of the city, and in 2009 estimated that 25,000 houses in these zones did have a suite.

However, to be legal, secondary suites have to pass building inspections — which means renovations to bring suites up to building codes — and meet specific requirements. In most municipalities, suites are subject to certain fees, which vary from jurisdiction to jurisdiction.

Surrey, for instance, allows each single-family home to have one suite that meets B.C.’s building codes and passes inspection. Fees, ranging from a secondary-suite services fee to additional charges for garbage, water and sewer usage, add up to $1,288 a year for suites in un-metered homes. For metered homes, fees are based on water consumption.

In Vancouver, suite owners require a business license, which is $62 per year with a one-time $50 new-applicant fee at the start. One-time fees for building inspections and permits add up to $1,194 or more. Annual fees — on top of the business licence — total $330.

The Real Estate Board of Greater Vancouver maintains a list on its website of which municipalities allow secondary suites, and outlines most requirements that homeowners must follow.

The least risky situation is to have a secondary suite registered in order to have certainty over matters that involve insurance or financing, said Larry Buttress, deputy executive officer for the Real Estate Council of B.C. However, Buttress added there is a risk in registration in that a suite might not be approved.

“So it’s a little bit of a Catch-22,” Buttress said.

For financing, McKinley said buyers with only the minimum down payment who need CMHC mortgage insurance have to make sure suites are legally registered to qualify.

Otherwise, banks and financial institutions have other ways to test income-generating potential of suites, such as a rent report conducted by an appraiser or examination of the rental income claimed by previous owners on tax returns.

Matters of financing and registration come before perhaps the toughest part of renting out your suite: the ongoing legal obligation of being a landlord.

“Renting a basement or secondary suite is a business, and business owners need to understand the rules,” said Spencer.

To start with, Spencer said homeowners have to understand their operations are governed by the Residential Tenancy Act, which sets out their responsibilities to their buildings and the rights of tenants.

Landlords have to make sure their suites meet health, safety and housing standards; they have to provide emergency repairs; and they need to understand what is meant by emergency (that the tenant’s health and safety is in danger).

“Education is the key,” Spencer said, adding she recommends homeowners join a professional association to get the backing of a larger group, particularly when it comes to acquiring legally enforceable rental application forms and rental agreements.

“Almost everything about being a landlord is regulated, from how you enter into a tenancy, how much you can charge for security and pet deposits, how you deal with rent increases, nonpayment of rent, and evictions,” Spencer said.

And landlords need to understand their obligations for repairs and maintenance, how they are allowed to access the suite, dealing with sublets, and what constitutes discrimination, she added.

For all of these reasons, Spencer said, landlords need those specific and legally enforceable forms.

This document is probably the most important, which comes as a surprise to many new landlords. A good rental application will require information on: the applicant’s job, their supervisor, their income, current address, landlord references, friends, government ID, next of kin, and extended family members.

This information will help landlords gain a better understanding of the tenant’s characteristics. More importantly, however, it gives the landlord some good contacts to track down the tenant if they should disappear.

• Move-in inspection report

Most provinces require a landlord and tenant to complete a move-in report upon onset of a tenancy. This quantifies and documents the condition of a property so that, when the tenant leaves, any damage caused is clear. A thorough and concise move-in report card is a sure-fire way of avoiding significant disputes over tenant-related damage.

• Residential tenancy agreement

As the name suggests, this document will establish the terms of the relationship between the tenant and landlord. The more detail it provides the better, and sourcing a free online agreement is not sufficient to cover a landlord’s interests.

• Addendum to residential tenancy agreement

This can be a small side document that forms part of the agreement and sets out additional rules for items such as pets, smoking in the unit, or penalties for late rental payments. These documents are harder to enforce, but establish good guidelines for the day-to-day operations of a rental property.

2) WHAT TO LOOK FOR WHEN SHOWING RENTAL PROPERTY

Some careful observations by the landlord can be extremely useful when considering the tenant’s application.

• Did the tenants arrive on time?

Tenants who are respectful of their landlord’s time are good tenants to have. Tenants who do not arrive on time for a showing are not likely to pay their rent on time, either.

• Are the children well behaved?

Tenants who want something — in this case, to move into your rental property — are likely to be on their best behaviour. Kids, on the other hand, can be cautioned numerous times to behave but have shorter attention spans. If the tenant’s kids are behaving poorly during the showing, expect the property to be returned to you with obvious damage.

• Did tenants take off their shoes?

If a landlord has to ask the tenant to remove their shoes, this is a good indication they are not in the habit of doing so. Tenants who remove their shoes are likely to cause less stress on the flooring of a rental property.

• What does the back seat of the tenant’s car look like?

This is a tried-and-true technique for learning whether the prospective renter will keep the rental property clean, or let clutter, dirt and debris build up. Avoid tenants with garbage in their car.

3) VERIFYING INFORMATION IN A RENTAL APPLICATION

The rental application contains the most comprehensive set of information about the prospective renters and should take the most time to review and confirm. Renters are extremely unlikely to include information in their application that they know will hinder their chance of having it approved. Ask the following questions:

• Does the tenant’s stated income seem unreasonably high?

Look for ways to confirm income, such as a letter of employment from a reputable business. If the income is from self-employment, ask for a recent tax return to confirm it. Remember: the more intrusive the questioning, the less likelihood of a disaster.

• Is the employer reputable?

A quick Google search to confirm the existence of the company or place of work provided by the tenant should be sufficient. If it does not exist or is extremely difficult to find online, then it is likely to have been made up. If it cannot be confirmed, decline the tenant’s application.

• Are there gaps in the tenant’s rental history?

If a tenant’s application lacks previous landlord information for a period of time (typically six or 12 months), they may be trying to hide a less-than-positive past tenancy. If they refuse to provide comprehensive chronological information for the past two years, ask where they lived during the missing time. A backpacking trip overseas or living with parents are acceptable responses; disclosure of a problematic tenancy followed by court eviction is not an acceptable response.

— Shamon Kureshi, Canadian Real Estate Wealth Magazine, Special to The Vancouver Sun

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How to be a landlord in Metro Vancouver

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